Elsevier

Energy Policy

Volume 37, Issue 5, May 2009, Pages 1898-1904
Energy Policy

The cofiring problem of a power plant under policy regulations

https://doi.org/10.1016/j.enpol.2009.01.028Get rights and content

Abstract

Cofiring of fossil and renewable fuels can contribute to reaching tightening climate and renewable energy goals. The increase in biomass share in cofiring decreases the use of fossil fuel and increases renewable energy production. We study how energy and climate policies promote that increase. First, we present and solve an electricity producer's profit-maximization problem with detailed technical description of cofiring. We then study the effectiveness of policy instruments (e.g. feed-in laws and emission trading) on biomass utilization in cofiring. The study offers a novel approach to explore the cofiring problem, because of the endogenous fuel choice combined with the policy analysis. We study two different power plants that are located in two different European electricity market areas. Our analysis shows that both feed-in tariff and feed-in premium can have unexpected weaknesses, when they are introduced together with emission trading. Therefore decision-makers should be well informed and cautious when introducing these policies.

Introduction

Climate change mitigation and the concern of oil dependence have made the policies promoting the use of renewable energy sources (RES) increasingly important. One of the most efficient ways to increase RES utilization and therefore lower the net CO2 emissions is to cofire coal and biomass (e.g. Baxter, 2005). Cofiring thus offers a substantial potential to meet the targets set for climate and energy policies. However, the selection of fuel at the plant level is crucially dependent on the particular policy instruments applied. Yet, there exist only few policy impact studies on cofiring plants (such as Tharakan et al., 2005). In this study, we present an economic model of a power plant cofiring two highly substitutable fuels: fossil fuel and biomass. We concentrate on two kinds of power plants. The model is used to assess the effects of energy and environmental policies on the fuel choice of a cofiring power plant.

Currently, coal is a dominant fuel in power production globally. The annual use of coal is over 5 billion tons and its use is expected to grow in the coming years. In some countries, such as Finland, Sweden, Ireland and Russia, there is also a long tradition of using peat in energy generation. From the point of view of climate change, the consumption of fossil fuels, such as coal and peat, is problematic. In the short run there is no solution that would eliminate CO2 emissions from fossil fuel plants, but while alternative technologies are being developed and built, cofiring could offer one solution to mitigate the problem. When fossil fuels are cofired with biomass which is sustainably grown or a residue of an industrial process, there are reductions in net CO2 emissions into the atmosphere.

Cofiring of biomass with fossil fuels has been field demonstrated in essentially every major boiler type and it is commercially used, for example, in multi-fuel boilers in Scandinavia. Although the progress has been rapid the share of biomass utilization in cofiring is small relative to the total amount of biomass used. However, there are no global statistics available. In the future, the share of biomass used in cofiring power plants is expected to increase. For example, in the projections of Annual Energy Outlook 2007, almost half of the increase of biomass generated electricity comes from biomass cofiring (IEA, 2007).

There are two major technologies for solid fossil fuel combustion: pulverized fuel (PF) and fluidized bed combustion (FBC). PF boilers are globally the most important coal burning technology, whereas FBC technologies are utilized especially when multi-fuel combustion is needed. In Finland, peat is utilized in both PF and FBC plants. Both of these technologies allow the cofiring of fossil fuel and biomass without major technical modifications, but PF plant can consume only small energy shares of biomass fuel. However, since the global capacity of PF plants is extensive, a small reduction in coal share can lead to a significant reduction in global net carbon emissions. The FBC plant is more suitable to multi-fuel use and allows much larger shares of biomass combustion.

Although the technology exists, it is not usually economical to use biomass fuels compared to the dedicated coal systems, since biomass fuels are typically more expensive to use than coal. However, in the Nordic countries it is profitable to combust wood residues of forest industries and logging residues with peat, when the harvesting site is near enough to the power plant. In order to fulfill the obligations of the EU climate and energy policy, there is a risen interest to increase the wood fuel consumption. This means increasing the use of logging residues and other energy wood. The growth of demand is expected to raise the prices of energy wood which makes its use economically less profitable. In order to increase the bioenergy utilization and compensate the increasing costs, RES promoting policies are needed.

International climate and renewable energy agreements force countries to ever-tightening greenhouse gas emission reductions and increasing commitments of RES utilization. Emission trading can be used to meet the CO2 emission reduction targets requested in the Kyoto Protocol. European Union initiated emission trading scheme (EU ETS) in the beginning of 2005. EU ETS concerns large emitters in the electricity and heat generation as well as in the iron, steel and pulp and paper industries. The power sector is the biggest and most active actor in EU's emission trading. In the United States there exist some unconnected emission trading schemes, such as the regional greenhouse gas initiative (RGGI) in the Northeastern states.

Probably the most important RES commitment so far is the one by the European Union: a 20% target share of RES in energy consumption by 2020 (EC, 2008). The non-profitability problem of wood use in coal and peat plants can be alleviated by policies that encourage the use of biofuels. Most EU Member States have initiated RES-E1 promoting policies like feed-in laws, tradable green certificates and investment subsidies. Most common policy instruments to promote the use of RES-E are feed-in laws: 21 EU countries have feed-in laws for renewable energy (e.g. Fouquet and Johansson, 2008). Feed-in laws create a RES-E demand that otherwise would not exist at least at the same level. The demand is created, because feed-in law ensures priority to grid access for renewable electricity and grid operators are obligated to purchase RES-E at a tariff price that is determined by the regulators. The costs of feed-in laws are usually passed on to electricity consumers. Feed-in laws can be divided into two groups: feed-in tariffs (FIT) and feed-in premiums (FIP). FIT is a certain above market price that the RES-E producer receives. FIP is a price that the RES-E producer receives on top of the market price, so FIP is more market-based tool than FIT. Cofiring is treated differently in the feed-in laws implemented by EU Member States: for example, in The Netherlands it is included while in Germany it is not (Faber et al., 2006).

The question of how feed-in laws and emission trading interact has not been studied analytically in detail. However, some studies cover the subject (e.g. Miera et al., 2008) and some analytical studies have been made on the interaction of green certificates and emission trading (e.g. Amundsen and Mortensen, 2001). Fischer and Newell (2008) studied the interaction of climate and renewable energy policy analytically, but they have divided energy generation into fossil-fueled sector and renewable energy sector. Our analysis provides a novel approach to cofiring modeling and policy analysis. Our results suggest that the interaction of FIT and emission trading might create an unexpected outcome: the rise in emission credit price might lead to a decreasing share of biomass in cofiring at the plant level.

Section snippets

Production technology

We study a short-run profit maximization problem of two kinds of power plants: power producing pulverized coal plant and CHP producing fluidized bed multi-fuel plant. We assume that there are two fuels, x=[x1x2], measured in their energy content and a set of other inputs, z, which include different labor inputs, emission abatement, electricity and other inputs. The use of these inputs, x and z, generates the variable costs of the plant. The amount of capital is assumed to be constant since

Scenarios and data

We examine two power plant scenarios to illustrate the joint effects of partly overlapping policies in different economic environments. The first scenario studies a coal burning condensing PF plant in a Central European country and the second a Nordic cogenerating FBC plant that utilizes peat. Both scenarios are analyzed with low and high electricity demand and the renewable fuel is wood. The scenarios are named EuroPF and NordicFBC, respectively. In both scenarios the optimal power plant

Results

Fig. 3 represents the optimal wood shares of the EuroPF plant in the case of low electricity demand (left side) and high electricity demand (right side) with different emission credit prices. As described earlier, in the low demand case coal is the marginal fuel when emission credit prices are low. When emission credit prices are higher than a limit (marked with gray vertical line) the marginal fuel is changed to natural gas. An opposite situation occurs when demand is high. The figure shows

Conclusions

The political relevancy of fossil and renewable fuel cofiring has increased considerably. Cofiring can be seen as an efficient way to increase RES utilization and therefore lower the net CO2 emissions globally. There are many promoting policies for the use of renewables in cofiring, of which we have examined emission trading, FIT and FIP. Typically climate and RES-E policies are implemented simultaneously, making the investigation of their interaction necessary. As this paper shows, there are

Acknowledgments

This research has been funded by Metsämiesten Säätiö Foundation. Earlier results have been presented at IFORS 2008 conference in Johannesburg. The authors would like to thank Prof. Markku Ollikainen and two anonymous reviewers for their valuable comments. The usual disclaimer applies.

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